This process of automated adjudication allows efficient management of payment based on claims coded through current coding standards, predominantly CPT or HCPCS. The adjudication process applies the rules of the contract to the incoming coded claim which then determines the proper payment on that claim.

With a properly coded claim, processed through a properly configured adjudication system, health plan providers can effectively manage the many thousands of incoming claims from its physician group, thus ensuring the smooth delivery of health care services to a member population.

But what happens when there is an error somewhere in this process chain? How do overpayments happen, and what are the remedies when they do?

Accurate claims adjudication: set it and forget it, but don’t really.

Configuration is the name for the process by which the multi-million dollar software programs that process claims automatically are programmed to pay according to the terms of physician and hospital contracts. When an adjudication system is misconfigured, sometimes hundreds of claims representing thousands of dollars are processed incorrectly before the error is detected.

“It can be easy to check the wrong box on the configuration screen,” says Duncan Belser, Vice President of the Financial Recovery Group. When that happens, Belser explains, “every claim that has a certain presentation of codes may pay incorrectly” – adjudicate in error is the technical expression.

To be clear, configuration errors can create over- or underpayments. The greatest focus of health plans and recovery vendors is the former. Often times as much as three percent of total claims volume can be overpaid, creating an opportunity for those with the resources to do the mining or contract for the service on a contingency basis. It is often up to the provider to validate underpayments. A few examples follow.

Adjudication Overpayment Recovery Process Examples:

Case rate error

Case rate adjudication errors occur when a contract stipulates a set payment for a specific procedure.

For example, for a herniated disk the contract may provide for a flat fee of $200,000. The physician group treats the patient’s bad disk and compiles a full inventory of the particulars required in the treatment process – tongue depressors, swabs, bandages, etc., – and adds up the bill to $350,000.

The bill is submitted to the health plan, the adjudication algorithm processes the bill and out goes a payment to the hospital for $350,000. But the contract defines payment for herniated disk claims at a case rate of $200,000 and no more, despite the number of hours of OR time required for the treatment. A misconfiguration in the system fails to account for this contractual case rate resulting in an overpayment of $150,000. Finding a hundred of these in a market can be rewarding for both the plan and the recovery vendor.

Nickel-and-dime error

Sometimes instead of a large overpayment on an occasional case rate basis as described in the previous example, there are many smaller claims overpaid by only a few dollars. In this case, the adjudication error overpays on dozens, hundreds, or thousands of claims but not by much.

“Sometimes you let those walk,” says Belser, “you just write it off.” But not always. A dozen overpayments of $2 may not be worth the effort of recovery and edit posting to correct them. On the other hand, if they concentrated on claims from a single provider or system, recovery may be possible.

Improper coding

Another source of common errors is improper CPT of HCPCS coding from the physician group back office. CPT codes were first developed in 1966 by the American Medical Association as a four-digit system initially intended for identifying surgical procedures. The system grew to a five-digit code structure describing medical, surgical and diagnostic services. In 2000 CPT was selected as the national standard by the HIPAA.

Based on the CPT coding system, the HCPCS standard works alongside CPT codes (level I) as well as identifying non-physician products (level II) such as ambulance service, prosthetics, drugs and other similar items.

These coding standards allow for an efficient workflow for claims processing but at the same time, they allow for payment errors.

For example, a patient presents with cataracts in both eyes. The surgeon performs the required procedure on both eyes. Two claims are submitted, one coded for the right eye, the other for the left, when in fact only one claim should be submitted properly coded with a third “bilateral” modifier. The result is an adjudication to pay for two procedures when in fact only one procedure was performed. Another form of GIGO leading to overpayment. If the physician group consistently submits incorrectly coded claims, either through poor training or worse, the overpayment becomes systemic and costly.

These are but a few examples of a multitude of possible scenarios for overpayment. Of course, the best solution is a properly tuned adjudication system processing properly coded claims.

In the real world, errors happen. The task is identifying them and taking corrective action.

Limitations and Considerations

Any estimation of potential success of pursuing the overpayment recovery process will obviously include a review of financial magnitude and collectability, but it can also be driven by other concerns. For example, legal constraints such as statute of limitations or specific time limitations clauses within the contract can dictate what is actually eligible for recovery. Medicaid programs in States like Florida limit recovery requests to claims paid within the last year. Some provider contracts may stipulate that after three months the claims are final.

On the other hand, regardless of the right to do so, asking for money back from a key provider group in a plan’s network can have negative relationship effects in the long term. This sort of provider abrasion is often something plans strive to avoid. If a large number of small overpayments are concentrated on one provider, the presentation of an unexpected demand for reimbursement of tens of thousands of dollars can cripple their cash flow.

Overpayment: analysis and discovery

The key to identifying errors depends on the ability to mine and analyze data. Methods include third-party modeling of the adjudication algorithm to test results against the live system and performing claims audits, particularly on mid to high-dollar claims.

To accomplish this, audit companies typically use big data-capable programs like Statistical Analysis Software (SAS®) to mine multiple years of claims data simultaneously for errors based on the contracts provided by the plans they serve.

Typically, these systems stratify bulk datasets using pertinent metrics including type of claim, place of service, facility or whatever natural common dimensions are dictated by the data itself. Subsets of this data are compared against statistically valid sample sizes of similar claim types to identify trends and patterns by type.

Once identified, consideration of legal or contractual limitations, financial ROI and provider abrasion on overpayment recovery help determine the best path for the provider once these patterns and errors are identified.

In some cases, a simple demand letter for overpayment reimbursement is the best course. If there is sufficient volume of expected future claims, overpayments could be offset by reductions in future payments. A caveat for overpayment offset from future claims is guarding against “morphing networks,” where essentially the same physician group “morphs” into a different entity with a different tax ID.

If the overpayments are few and relatively small, the ROI may not justify pursuing overpayment recovery.

Once overpayments are identified and dealt with it becomes incumbent on the provider to quickly adjust for those errors, making any reconfigurations necessary in the claims adjudication system to avoid similar future errors.

A high-volume health plan provider may process millions of claims annually, paying out billions of dollars. The average error rate on these claims ranges from one to three percent. But even if those errors exist on the margins of total claims, it adds up to a significant opportunity for financial recovery.